There are some investment advisors who scare away from the idea of sector investing. However, with adequate research, one might find that certain areas of the overall market tend to outperform others in various economic seasons. But is the risk of overexposing ones’ self to sectors worth it?
Before I answer this question I’d like to list the 11 major stock sectors:
2. Real Estate
3. Consumer Discretionary
4. Consumer Staples
Before someone considers investing in specific sectors, they must recognize that over time there are periods and seasons in which one sector performs better than others. Some of the worst sectors to own in bear markets is Technology stocks like Google, FaceBook, Apple, Amazon and Microsoft. However as times get better, this sector usually outperforms the rest of the market.
My recommendation is to not invest in specific sectors and sector funds unless you are comfortable risking a significant portion of your portfolio. If you do decide to invest in sectors, pick one that is both posed to do well over the next few months as well as the next decade. You want both the fundamental and technical analysis working in your favor. Overall, stock sectors can be a very lucrative strategy for investing.
Often all the things we want to accomplish aren’t feasibly achievable in a set period of time. When this is true, we have to make the often difficult decision of determining which path matches with our values. In other words, we probably can’t achieve every goal we have so we have to prioritize.
This is very true with short term goals like making it to your kid’s basketball game verses watching the football game live. But it can also be true with long term goals. For example I certainly would enjoy the process of being a masterful accountant who has both technical skills and people skills. However I have come to realize that I might never become the world’s greatest accountant if I have other goals more worthwhile (for example like becoming a great financial advisor).
You might think a strange thing to add to this list is goals. After all, aren’t goals things that empower us and keep us on track? Yes and no. In one sense goals are essential to producing the results we want in life. In another sense, goals by themselves, without effective plans to get there and way to streamline actions towards them, are meaningless.
As Warren Buffet and Bill Gates agreed in an interview: one of the greatest factors to success is focus. Putting all your energy on one task, both with your mind and body, is a powerful thing.
Having too many goals, I have found, can get in the way of this powerful focus. That’s why it’s so important to recognize the things that are worthwhile and the things that can wait.
Lastly on this simple list of 3 is inflation. This is more of a technical obstacle than a mental one. However the force can be equally important. If you were to buy a house in a stable neighborhood today, do you think the same house would be worth more in 30 years? Yes, I would hope so. This fact that we can all bet on, the fact that prices will overall rise year after year, is called inflation.
Inflation is powerful because it covers both the consumption side (for example like purchasing gum) and the investment side like stocks or investment real estate. Inflation is such an important force that I will be covering a brief history and action steps around it tomorrow in my blog. Tune in!